On November 8, 2016, in the evening, the Prime Minister of the country Narendra Modi announced on the television that post mid-night all the currency of Rs 500 and Rs 1000 will become invalid. This single decision was taken to flush out 86 per cent of the currency of the world’s seventh largest economy. It was termed as demonetisation. In the past, the world over, there have been a few such attempts but not one was successful.
No expert has ever proposed such a step. The economists by and large have never endorsed such a line of action. So what prompted the Government of the day to make such an announcement? Was it the decision of one individual or the collective wisdom of the Cabinet? Were the experts consulted at all and was their opinion given any heed while going ahead with demonetisation? Several thoughts came to one’s mind on that day: was it a dictatorial decision? Was it a whimsical decision? Or was it sheer economic adventurism or political expediency which guided this decision?
Read on to grasp the myth and the reality of demonetisation.
We were told by the Government and the spokespersons of the ruling party that demonetisation was the single most important step to curb black money and digitise the Indian economy. The myth purported was that demonetisation would completely eliminate black money from the Indian economy.
The reality is that as per the RBI report, 99.3 percent of the demonetised currency has crept back into the economy! Demonetisation was professed to be an attack on crony capitalists; in reality it broke the back of India’s teeming millions; the low and middle-income groups were worst affected.
Black money recovered from the system after demonetisation was expected to be ploughed back into the economy as public investments in infrastructure and other public welfare projects; the reality is that demonetisation choked small and medium enterprises and brought millions of daily wage earners in the country on the brink of economic despair and starvation.
Instead of being a well-thought out scheme with a clear implementation plan demonetisation resulted in serpentine queues of millions of under-privileged Indians for weeks on end resulting in what some authentic sources say the death of over a hundred people. A similar exercise in a Latin American country a few years ago had caused widespread riots and looting of banks; it goes to the credit of the common folk of this great country who bore the brunt of demonetisation with courage and fortitude. In retrospect, they were all misled by the myth that demonetisation was a fight against black money and corruption.
On the second anniversary of the deed recently, the myth was shattered and the stark reality was evident to the people of this country. Demonetisation has proved to be a dictatorial and mindless act keeping short term political gains in mind. Those political gains were achieved in the State elections which followed in Uttar Pradesh and Uttarakhand. But, these short term gains will certainly be reversed in Lok Sabha elections in 2019 and the States which went to poll recently. Short term political expediency will give way to long term political loss.
The myth is shattered. Remember, you can fool some people all the time, all people some of the time but not all the people all the time. The people of India will no longer be fooled and they will respond in a quiet and peaceful manner through the ballot box in 2019.
Demonetisation was expected to benefit all; this was another myth. In reality, it benefitted one man, one party and the crony capitalists under their care; both politically and financially.
The highest amount of cash exchange happened in the banks in a particular State where a particular person, chairperson of a particular political party was on the board of directors.
In the name of digitisation of the economy one particular digital payment company benefited, their consumers and profits increased manifolds while the common man was majorly inconvenienced and the economy suffered.
For small gains, the whole nation was put through tremendous hardships. The money spent on printing new currency and recalibrating the ATMs with the damaging effect of countless livelihoods was never considered as a cost by the Government at all. Small businesses were affected-many haven’t been able to recover even now, two years down the line.
As the fiasco of demonetisation unfolded, the reasons for it as per the Government kept changing. From curbing black money, it changed into encouraging digital economy to starving the cash flow to terrorists and stone pelters to stopping counterfeit currency etc.
The goal post kept changing almost every day. However, now we know for sure all these were myths peddled by the Government for most of the cash is back in the system, we are back to the same level of cash transactions, terrorists are as active as before and Rs 2000 note is easiest to counterfeit. In reality, demonetisation actually helped the rich to convert their black money into accounted cash. Another benefit of demonetisation was supposed to be the increasing tax compliance.
The numbers of returns filed have surely increased however the quantum of increase in the tax collection is not known as yet, whether it was worth the pain the people and the economy had to suffer. It was actually a misadventure, of a kind which should never happen with any country, its economy and its people. Perhaps, if RBI had taken a firm stand as it did recently with regards to access to its reserves, the nation would have been spared of much of misery.
Thus, one wonders if demonetisation was a carefully thought out step to benefit the national economy and its people or was it a Tughlaqi idea to benefit a party and its short term agenda.
(A graduate from London School of Economics & NALSAR, Hyderabad, the author has worked at the United Nations in Geneva and is a social activist in Uttarakhand. Views expressed are personal)